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Small cannabis companies -- and some that aren't so small -- don't have a lot of avenues for raising capital. That's especially true in the U.S., where federal laws place tight restrictions on financial institutions' ability to do business in the cannabis industry.

Canopy Rivers
(OTC: CNPOF)
and
Innovative Industrial Properties
(NYSE: IIPR)
provide alternatives for cash-strapped cannabis companies. Investors have rewarded Innovative Industrial Properties more for its efforts, with the stock soaring more than 120% year to date while Canopy Rivers shares have dropped over 20%. But which of these two cannabis stocks is the better pick looking ahead?

Cannabis plants growing in a greenhouse

Image source: Getty Images.

The case for Canopy Rivers

The main reason to consider buying Canopy Rivers is that its portfolio of investments could pay off in a big way over time. Canopy Rivers is currently invested in 17 cannabis-related companies so far through arrangements including joint ventures, royalty streaming deals, equity stakes, and convertible debenture financing.

Some of Canopy Rivers' portfolio partners are Canadian licensed producers. These include small private companies such as Agripharm and relatively larger public companies such as
TerrAscend
. Canopy Rivers is also involved in a couple of joint ventures with greenhouse produce companies that have jumped into the cannabis industry.

Other investments made by Canopy Rivers were in small companies that develop technology for the cannabis industry. A couple of these portfolio partners, BioLumic and ZeaKal, focus on agricultural technology. Headset develops business intelligence and analytics solutions for the cannabis industry. LeafLink operates a software-as-a-service e-commerce platform that supports cannabis companies.

Canopy Rivers could benefit from the launch of the cannabis beverages and edibles market in Canada later this year, with its investments in Greenhouse Juice and Herbert Works, both of which plan to roll out cannabis-infused beverages. It could also profit from the growth of the cannabis consumer products market thanks to its investment in cosmetics company High Beauty.

Another drawing card for Canopy Rivers is its close relationship with
Canopy Growth
. The big Canadian cannabis producer spun Canopy Rivers off as a separate entity in 2018 and still owns a minority stake in the company.

Canopy Growth founder and former CEO Bruce Linton
views Canopy Rivers as one of the three top cannabis stock
s on the market. Linton likes the diversification Canopy Rivers offers, along with the expertise of its management team. He's not alone in his optimistic view about Canopy Rivers. Analysts think that the stock could soar by close to 165% over the next 12 months.

The case for Innovative Industrial Properties

Innovative Industrial Properties (IIP) helps medical cannabis companies raise capital in a different way from Canopy Rivers. IIP buys properties then leases them to cannabis growers. For cannabis producers that already owned their facilities, it generates immediate cash. IIP helps new companies conserve their cash by not having to make a big investment in buying land and building a facility.

So far, IIP owns 27 properties in 12 states. All of these properties are leased out, with a weighted-average remaining lease term of close to 15.5 years.

The company's business model has proven to be quite successful. IIP reported year-over-year revenue growth of 155% in the second quarter of 2019. It's also one of only a few cannabis companies
that are consistently profitable
.

Until this year, IIP had no debt. However, in February the company issued exchangeable senior notes that raised $138.4 million in net proceeds. The company has used the cash to invest in more properties, fueling its ongoing growth. Taking on some debt actually makes sense for IIP. The company pays 3.75% per year on its senior notes, but its average yield on invested capital for its current properties is around 14.5%.

Expect IIP to continue growing. The company is attracting even more interest from cannabis operators now than in the past. IIP attributes this increased interest to the attraction of its business model, its increased visibility in the cannabis industry, and a slowdown in Canadian capital markets.

One great thing for investors interested in IIP is its dividend yield of more than 2%. This yield has been much higher but has fallen as IIP's share price soared. As a
real estate investment trust (REIT)
, IIP must distribute at least 90% of its taxable income to shareholders in the form of dividends.

Better cannabis stock

Innovative Industrial Properties is already profitable, while Canopy Rivers isn't. IIP's business model is proven, while Canopy Rivers' investment portfolio has a lot of uncertainty. IIP's revenue growth is strong, but Canopy Rivers' revenue fell in its last reported quarterly results. IIP pays a solid dividend; Canopy Rivers doesn't. My view is that Innovative Industrial Properties is the hands-down winner between these two cannabis stocks.